Superannuation was designed to encourage people to save for their retirement in a low tax environment. To compensate for this generous concession, the Government placed strict caps on how much can be contributed each year and when the money can be accessed.
Concessional super contributions include personal contributions claimed as a tax deduction by those who are self-employed, (such as farmers) and employer contributions (including contributions made under a salary sacrifice arrangement).
Non-concessional contributions are personal contributions (paid for with after tax money) for which you do not claim an income tax deduction.
What are the current (before tax) concessional contribution caps?
The general concessional cap for 2013-14 is $25,000, however, those who are 60 years or over at any time during the 2013-14 financial year, the cap is $35,000.
What will the concessional contribution caps be from 1 July 2014?
The general concessional cap for the 2014-15 financial year will raise to $30,000, however, those who are 50 years or over at any time during the 2014-15 financial year, the cap will be $35,000.
Is there a non-concessional (after tax) cap too?
The non-concessional cap for 2013-14 is $150,000 a year or $450,000 ‘brought forward’ over a three year period. From 1 July 2014 this will increase to $180,000 per year or $540,000 over three years.
Removal of excess contribution tax
Despite all the talk of the Government fiddling with super to help increase taxation revenues, a very important taxation change came into effect which would have done the opposite. Since 1 July 2013, concessional (before tax) contributions that exceeded the limit have no longer been subject to ‘excess contributions tax’ of 31.5% (in addition to the 15% already paid). In extreme cases, some people ended up paying 93% tax on contributions that breached both their concessional and non-concessional caps! Yes, you just read that correctly. Thankfully, after a few unfortunate case studies and plenty of industry lobbying, common sense prevailed and the harsh penalties have been removed. Instead, any the amount above the cap will now be included in your assessable income and taxed at your marginal tax rate (plus a charge). This is a much fairer system, as nearly all breaches in the past were unintentional and honest mistakes for which the punishment did not fit the crime.
It is important that people get good advice around this to ensure they do not inadvertently make a costly mistake.